The Employee Retention Credit (ERC) is a unique financial instrument, based on the accrued payroll wages paid by businesses, rather than their income taxes. When ERC funds aren't utilized fully towards settling owed payroll taxes, they are deemed as an 'over deposit'. These 'over deposits', as opposed to becoming forfeit or irrelevant, can be claimed as a refund check from the Internal Revenue Service (IRS).

To claim the ERC, qualifying employers are required to declare their total eligible wages and associated health insurance expenses for each quarter on their quarterly employment tax returns. The credit is applied against the employer's share of the Social Security tax, however, any excess amount is refundable under standard procedures.

Employers, while waiting to claim the ERC, can conserve an equivalent amount of the employment taxes that would have otherwise been deposited. This includes federal income tax withholding, the employees' proportion of Social Security and Medicare taxes, and the employer's share of Social Security and Medicare taxes for all employees. This amount can be retained up to the value of the credit, without incurring any penalties. This provision also takes into account any reductions for deposits made in anticipation of the paid sick and family leave credit provided under the Families First Coronavirus Response Act. As a result, the ERC acts as a crucial buffer for businesses, potentially easing their financial burden during challenging times.

(IRS, Claiming the Credit)